TaxTMI Updates e-Newsletter
Dec 10,2015

Section 45(5) of the Income Tax Act - capital gains on enhanced compensation - inchoate or disputed right to receive compensation - taxability in the year of receipt - trust money and its exclusion from net wealth - pendency of appellate proceedings under Section 31(2) of the Land Acquisition Act affecting tax consequences

Section 45(5) of the Income Tax Act - capital gains on enhanced compensation - inchoate or disputed right to receive compensation - Whether the enhanced compensation received by the assessee is taxable as capital gains under Section 45(5)(b) in the relevant previous year. - HELD THAT: - The Court held that although Section 45(5) generally taxes enhanced compensation in the year of receipt, that rule cannot be applied where the recipient's fundamental right to receive compensation is itself in dispute and has not attained finality. Here the assessee's entitlement to compensation for the 1/16th bhumidari share remains uncertain because appeals arising from the Section 31(2) LA Act proceedings are pending; accordingly the question of taxing the enhanced compensation under Section 45(5)(b) must await the final outcome of those appellate proceedings. The Court contrasted cases where only quantum was to be determined with cases where the right to receive payment is contested, and followed authorities holding no accrual of income where no debt or vested right exists. [Paras 46, 48, 51, 62, 65]

Taxability of the enhanced compensation under Section 45(5)(b) will await the final decision in the appeals arising from the Section 31(2) LA Act proceedings.

Application of precedent - Section 45(5) of the Income Tax Act - Whether the ITAT was correct in applying the Supreme Court decision in CIT v. Hindustan Housing despite the subsequent enactment of Section 45(5). - HELD THAT: - The Court held that, on the facts of this case, the ITAT was incorrect to apply Hindustan Housing as overriding Section 45(5). Section 45(5), introduced with effect from AY 1988-89, alters the taxation rule for enhanced compensation; consequently Hindustan Housing cannot be applied so as to negate the statutory scheme embodied in Section 45(5) where that provision is applicable. The Court nevertheless recognised that Section 45(5) itself is subject to the caveat that a recipient must have a real right to the compensation for the provision to operate. [Paras 62, 65]

ITAT was incorrect in law in holding Hindustan Housing applicable notwithstanding Section 45(5).

Interest on enhanced compensation - taxability in the year of receipt - inchoate or disputed right to receive compensation - Whether interest received by the assessee on enhanced compensation is assessable in the same year in which the enhanced compensation is received. - HELD THAT: - The Court observed that interest under Section 28 of the LA Act forms part of enhanced compensation and, as a general legal proposition (per Ghanshyam (HUF)), is taxable in the year of receipt. However, in the present case the entitlement to compensation (and therefore to the interest which is an accretion thereto) is dependent on the outcome of the pending Section 31(2) appeals; consequently the question of assessing the interest in the year of receipt must await the final decision in those appellate proceedings. [Paras 50, 51, 65]

Assessment of interest on the enhanced compensation in the year of receipt must await the final decision in the appeals arising from the Section 31(2) LA Act proceedings.

Trust money and its exclusion from net wealth - wealth tax valuation date - Whether the amounts received by the assessee by way of enhanced compensation/interest are includable in the net wealth of the assessee for wealth tax purposes. - HELD THAT: - The Court agreed with the ITAT that the sums withdrawn by the assessee upon furnishing bank guarantee are, in the present factual matrix, in the nature of trust money which may be required to be returned if the assessee is unsuccessful in the pending appeals. For inclusion in net wealth the asset must, as on the valuation date, belong to the assessee; where the receipt is conditional and the right is in dispute the wealth tax provisions are not yet attracted. Thus the question of includability in net wealth must await the final decision in the Section 31(2) LA Act appellate proceedings. [Paras 66]

Amounts held to be trust money and not includable in the assessee's net wealth at this stage; determination awaits final appellate outcome under Section 31(2) LA Act.

Final Conclusion: The Revenue's appeals are dismissed. For income-tax issues, although Section 45(5) ordinarily taxes enhanced compensation (and interest as part of such compensation) in the year of receipt from AY 1988-89 onwards, the present enhanced payments cannot be brought to tax until the pending appeals arising from the Section 31(2) Land Acquisition Act proceedings determine the assessee's entitlement; likewise the wealth-tax exclusion as trust money stands confirmed until those appellate proceedings are finally decided. No orders as to costs.

Manufacture and production of article or thing - interpretation of "manufacture" for sections 10A/10AA/10B having regard to Special Economic Zones Act and Foreign Trade Policy - exercise of revisional jurisdiction under section 263 - erroneous and prejudicial to the interests of revenue

Manufacture and production of article or thing - interpretation of "manufacture" for sections 10A/10AA/10B having regard to Special Economic Zones Act and Foreign Trade Policy - exercise of revisional jurisdiction under section 263 - erroneous and prejudicial to the interests of revenue - Validity of CIT's revision under section 263 in quashing assessment orders that allowed deduction under section 10B after finding the assessee undertook "manufacture and production". - HELD THAT: - The Tribunal examined whether the assessee's activities - converting unfinished/semi finished handicraft and brass components into finished exportable products by sanding, carving, polishing, antiquing, assembling (eg. 3 in 1 and 5 in 1 games), staining, painting and packaging - amounted to "manufacture or production" for the purposes of section 10B(2)(i). It applied the established approach that, for these provisions, the meaning of "manufacture" is to be read in harmony with the definition in the Special Economic Zones Act and the Foreign Trade Policy, which include processes such as cutting, polishing, repacking, blending and assembling. The reassessment by the Assessing Officer was carried out in pursuance of a High Court remand, involved verification of additional evidence, consideration of affidavits, production/inspection of sample exhibits and a departmental inspector's spot report describing use of sanding, buffing, cutting and assembly operations. On that factual foundation the Assessing Officer concluded that the activities constituted manufacture and allowed deduction under section 10B. Applying the legal tests in decisions such as Malabar Industrial and related precedents, the Tribunal held that where the Assessing Officer has made a reasoned inquiry and taken a plausible view supported by evidence, the Commissioner cannot label that view as "erroneous and prejudicial" simply because a different view is possible. The Tribunal therefore found the CIT's exercise of revisional power under section 263 to be without valid jurisdiction, the notices and orders under section 263 to be unsustainable, and quashed them. [Paras 23, 24, 27, 28]

Noting that the Assessing Officer's reassessment (after High Court remand) was a reasonable, evidence based and sustainable view that the assessee carried out manufacturing/production, the Tribunal held the CIT wrongly invoked section 263; the notices and orders issued under section 263 for AYs 2006-07, 2007-08 and 2009-10 were quashed and the appeals of the assessee were allowed.

Manufacture and production of article or thing - interpretation of "manufacture" for sections 10A/10AA/10B having regard to Special Economic Zones Act and Foreign Trade Policy - Validity of CIT(A)'s allowance of deduction under section 10B for assessment year 2008-09 on facts and law. - HELD THAT: - The first appellate authority allowed the assessee's claim for deduction under section 10B for AY 2008-09, following the Assessing Officer's and tribunal's conclusions in the other years that the activities amounted to manufacture. Having held that the Assessing Officer's view (in the reassessment proceedings following the High Court directions) was sustainable, the Tribunal found no error in the CIT(A)'s order for AY 2008-09 and observed that the CIT(A)'s decision was consistent with the concurrent findings and the evidence. Consequently, the revenue's appeal against the CIT(A) order was without merit. [Paras 31, 32]

The first appellate order allowing deduction under section 10B for AY 2008-09 is upheld and the revenue's appeal is dismissed.

Final Conclusion: The Tribunal held that the assessee's finishing, processing and assembly activities on purchased unfinished/semi finished components constituted "manufacture/production" for the purposes of section 10B read with the SEZ Act/Foreign Trade Policy; the Assessing Officer's evidence based acceptance of that view on remand was a sustainable one and the CIT erred in invoking section 263. Consequently, the section 263 notices/orders for AYs 2006-07, 2007-08 and 2009-10 were quashed and the assessee's appeals allowed; the revenue's appeal for AY 2008-09 was dismissed and the first appellate order granting deduction under section 10B was upheld.

Revision under section 263 - Erroneous and prejudicial to the interests of revenue - Scope of interference under section 263 - Application of mind by the Assessing Officer - Deduction of tax at source under section 194C - Disallowance under section 40(a)(ia)

Revision under section 263 - Scope of interference under section 263 - Application of mind by the Assessing Officer - Validity of the Principal Commissioner's order under section 263 setting aside the assessment order dated 01-03-2013 on the ground that the Assessing Officer failed to verify the cost of construction and accepted the loss without verification. - HELD THAT: - The Tribunal examined the assessment record and the material placed before the Assessing Officer during the original assessment proceedings u/s 143(3). The AO had before him detailed material relating to the sole real estate project at Gandhinagar, including the development agreement, settlement and cancellation deeds, correspondence about the dispute with the developer, and the manner of sale to M/s Silverline Enterprise; these matters were discussed in the assessment order dated 01-03-2013. The AO formed a plausible view permitting the claimed loss after applying his mind and considering relevant material; the Tribunal held that where the AO has applied mind and adopted a tenable view, the exercise of jurisdiction under section 263 is unwarranted unless the assessing officer's view is shown to be erroneous and prejudicial to revenue. The CIT did not demonstrate how the AO's view was erroneous or prejudicial. In those circumstances the Tribunal concluded that the CIT's revision was not sustainable and that the AO's order should be restored. [Paras 9, 10]

The order passed by the Principal Commissioner under section 263 is set aside and the assessment order dated 01-03-2013 passed by the Assessing Officer is restored.

Deduction of tax at source under section 194C - Disallowance under section 40(a)(ia) - Status of the contention regarding non-verification of creditworthiness of the purchaser and related enquiries called under section 133(6). - HELD THAT: - The CIT had observed that notices under section 133(6) were issued to M/s Silverline Enterprise but found no evidence of compliance on record and directed verification of creditworthiness. Before the Tribunal the Revenue did not press the contention relating to verification of the purchaser's creditworthiness. Accordingly the Tribunal did not uphold the CIT's direction on this aspect and proceeded to set aside the revision order on the broader ground that the AO had applied his mind. The Tribunal thus did not remit the matter for fresh verification of purchaser creditworthiness as a determinative issue pressed by the Revenue. [Paras 9]

The Revenue did not press the objection regarding verification of purchaser's creditworthiness; the Tribunal did not sustain the CIT's direction on this point.

Final Conclusion: The appeal is allowed: the Tribunal set aside the Principal Commissioner's order dated 26-03-2015 under section 263 and restored the assessment order dated 01-03-2013 passed by the Assessing Officer; the Revenue did not press the contention regarding verification of the purchaser's creditworthiness.

Infrastructure facility under section 80IA(4) - inland port / container freight station (CFS) as infrastructure - continuity of deduction where initially allowed - protection against subsequent withdrawal - ten consecutive assessment years option under section 80IA(2) - BOT/BOLT requirement and reversion of infrastructure to statutory body - burden of proof on diversion of borrowed funds - investment presumed from interest free funds - allowability of interest under section 36(1)(iii)

Infrastructure facility under section 80IA(4) - inland port / container freight station (CFS) as infrastructure - Assessee's CFS qualifies as an infrastructure facility for deduction under section 80IA(4). - HELD THAT: - The Tribunal examined the Explanation to section 80IA(4) as it existed prior to the 2007 substitution and observed that 'inland port' was included as an infrastructure facility from assessment year 2002-03. Judicial precedents and earlier tribunal decisions treating CFS as an 'inland port' were followed. The assessee had entered into an agreement with the statutory authority (CIDCO) and the facility was approved/notified by relevant ministries. No material was placed by Revenue to controvert the first appellate authority's factual finding that the assessee developed, operated and maintained the CFS and that the arrangement was recognised by competent authorities. On these bases the Tribunal held that the CFS is an infrastructure facility and the assessee is eligible for deduction under section 80IA(4). [Paras 8, 9]

CFS developed, operated and maintained by the assessee qualifies as an infrastructure facility under section 80IA(4); deduction allowable.

BOT/BOLT requirement and reversion of infrastructure to statutory body - The alleged absence of a BOT/BOLT arrangement did not disentitle the assessee to deduction under section 80IA(4). - HELD THAT: - The Tribunal noted that the condition requiring transfer of the infrastructure to Government/local authority/statutory body had been removed by Finance Act, 2001 w.e.f. 1 4 2002. Even if such a condition were relevant, the first appellate authority had recorded an uncontested factual finding that the infrastructure would revert to the statutory body after the 60 year period. The Assessing Officer's view that the agreement was merely a lease and not BOT/BOLT was not sustained on the record. Consequently, the Assessing Officer's reliance on the absence of BOT/BOLT to deny deduction was held to be without basis. [Paras 10]

Denial of deduction on ground that the agreement was not BOT/BOLT is unsustainable.

Continuity of deduction where initially allowed - protection against subsequent withdrawal - ten consecutive assessment years option under section 80IA(2) - Once deduction under section 80IA(4) was examined and allowed in the first year of claim, it could not be withdrawn in a subsequent year absent material change in facts. - HELD THAT: - Section 80IA(2) permits an assessee, at his option, to claim deduction for ten consecutive assessment years beginning from the year the undertaking starts operating. The assessee claimed and obtained the deduction in assessment year 2002 03 and it was subsequently allowed by orders under section 143(3) through 2007 08. The Tribunal held that where the relevant facts remain unchanged, an Assessing Officer cannot withdraw a deduction already admitted after examination in the initial year merely because additional information has been obtained in a later year. Re opening of earlier assessments under section 147 was not a determinative factor for the 2008 09 assessment, which must be decided on the facts existing on the date of that assessment. Reliance was placed on the jurisdictional precedents indicated in the record. [Paras 11]

Assessing Officer could not disallow deduction in the impugned year when deduction had been validly allowed in the first year of claim and there was no material change in facts.

Burden of proof on diversion of borrowed funds - investment presumed from interest free funds - allowability of interest under section 36(1)(iii) - Addition disallowing interest under section 36(1)(iii) was deleted because assessee established availability of sufficient interest free funds and no evidence contradicted the bona fide utilisation of the loan. - HELD THAT: - The Assessing Officer disallowed interest expenditure alleging diversion of borrowed funds to investment in subsidiaries. The Tribunal examined the record and noted that the assessee had substantial interest free funds (share capital and reserves) far exceeding the investment made in subsidiaries during the year; this was not controverted by Revenue. Under the principle applied by the jurisdictional High Court, where both borrowed and interest free funds are available, the presumption is that investment was made from interest free funds. Additionally, the loan agreement empowered the bank to inspect utilization and there was no allegation from the bank that funds were misutilised. In absence of material displacing the presumption, the Assessing Officer's disallowance could not be sustained. [Paras 16, 17, 20]

Deletion of addition disallowing interest sustained; interest allowable under section 36(1)(iii).

Final Conclusion: Both Revenue appeals for assessment years 2008-09 and 2009-10 are dismissed: the Tribunal upheld the first appellate authority's findings that the assessee's CFS is an infrastructure facility eligible for deduction under section 80IA(4), that deduction once validly admitted in the first year of claim could not be withdrawn in the absence of any material change in facts, and that the disallowance of interest under section 36(1)(iii) was rightly deleted in view of available interest free funds and absence of evidence of diversion.

Disallowance under Section 14A in absence of exempt income - deductibility of Voluntary Retirement Scheme payments - mortisation under Section 35DDA vis-a -vis general deduction under Section 37(1) - grant of TDS credit on production of certificates subject to verification under Section 199 - treatment of electronic filing acknowledgement date in accordance with CBDT press release for filing timeliness - deletion of disallowance relating to prior period adjustments not actually claimed - allowability of loss on sale/write-off of stores and spares where identical claim previously allowed

Disallowance under Section 14A in absence of exempt income - Disallowance under Section 14A of Rs. 916 reversed where assessee had no exempt income - HELD THAT: - The Tribunal accepted that the assessee did not have any exempt income in the year. Following the decision of the Delhi High Court in Cheminvest Ltd., it held that where there is no exempt income, no disallowance under Section 14A can be made. On that basis the CIT(A)'s confirmation of the Section 14A disallowance was reversed. [Paras 6]

Disallowance of Rs. 916 under Section 14A is reversed.

Deductibility of Voluntary Retirement Scheme payments - mortisation under Section 35DDA vis-a -vis general deduction under Section 37(1) - VRS payments must be allowed by amortisation under Section 35DDA and cannot be claimed as an immediate deduction under Section 37(1) - HELD THAT: - The Tribunal observed that Section 35DDA, introduced with effect from AY 2002-03, prescribes that expenditure on voluntary retirement schemes is to be deducted at one-fifth in the year of payment and equally over the next four years, and expressly bars allowance of such expenditure under any other provision. Though earlier authorities had treated VRS payments as revenue in certain factual contexts, those decisions pre-dated Section 35DDA or did not consider it. Applying the statutory scheme, the Tribunal held that where Section 35DDA applies, the residual provision of Section 37(1) cannot be resorted to for allowing the full claim in the year of payment, and therefore confirmed the disallowance previously made under Section 37(1). [Paras 11, 13, 15, 16]

The claim for VRS payments is not allowable in full under Section 37(1) and is to be governed by Section 35DDA; the disallowance of Rs. 6,08,74,376 is confirmed.

Grant of TDS credit on production of certificates subject to verification under Section 199 - Assessing Officer directed to grant credit for TDS certificates after proper verification under Section 199 - HELD THAT: - The assessee filed TDS certificates along with the return. The Tribunal held that CIT(A) was not justified in dismissing the claim on the ground of alternative remedy when the certificates had been produced. It directed the AO to grant TDS credit of the claimed amount if, on verification, the credit complies with the provisions of Section 199 of the Income Tax Act. [Paras 17, 18]

AO directed to grant TDS credit after verification in accordance with law.

Treatment of electronic filing acknowledgement date in accordance with CBDT press release for filing timeliness - Return treated as filed on 30.9.2008 (timely) despite acknowledgement stamp 1.10.2008; carry forward of loss allowed - HELD THAT: - The assessee's return was e-filed on 30.9.2008 but the printed ITR-V showed an acknowledgement date of 1.10.2008. The Tribunal accepted the assessee's submission, supported by the CBDT press release dated 22.12.2008, that such electronic filings with an acknowledgement date of 1.10.2008 would be treated as filed on 30.9.2008. Applying that administrative instruction, the Tribunal directed the AO to allow the carry forward of losses claimed in the return. [Paras 19, 20, 21]

Carry forward of loss is allowed and AO directed to give effect to the return as filed on 30.9.2008.

Deletion of disallowance relating to prior period adjustments not actually claimed - Disallowance of prior period expenses of Rs. 22,47,126 deleted where the amounts either represented reversal of previously offered income or related items already dealt with under Section 43B - HELD THAT: - The Tribunal examined the components of the prior period adjustment and agreed with the CIT(A)'s analysis: (i) part represented a reversal of previously estimated interest income (not a prepaid expense) and deletion was warranted; (ii) bonus amount formed part of amounts already disallowed under Section 43B by the assessee itself; and (iii) gratuity similarly did not represent a prepaid expense and was covered by Section 43B disallowance. On these bases the AO's disallowance was deleted and the CIT(A)'s order was confirmed. [Paras 27, 28]

Disallowance of Rs. 22,47,126 deleted; CIT(A)'s order confirmed.

Allowability of loss on sale/write-off of stores and spares where identical claim previously allowed - Disallowances relating to loss on sale of stores and write-off of spares deleted where identical claims had earlier been allowed - HELD THAT: - The Tribunal noted that the identical claims for a prior year were allowed by the AO (pursuant to ITAT directions) and there was no change in facts for the year under consideration. In view of the prior acceptance and absence of distinguishing circumstances, the CIT(A)'s deletion of the disallowances was upheld. [Paras 29, 31]

Disallowances of Rs. 4,18,611 and Rs. 13,20,959 deleted; revenue appeal dismissed on this ground.

Final Conclusion: For Assessment Year 2008-09, the assessee's appeal is partly allowed: the Section 14A disallowance is reversed; the VRS claim must be governed by Section 35DDA and the Section 37(1) claim is disallowed; TDS credit is to be granted by the AO after verification; carry forward of losses is permitted in view of the CBDT press release. The revenue's appeal is dismissed, with deletion of the prior period and stores/spares disallowances.

Fees for Technical Services - presumptive taxation under Section 44BB - taxability under section 9(1)(vii) - permanency of coordinate-bench and High Court precedents

Fees for Technical Services - presumptive taxation under Section 44BB - taxability under section 9(1)(vii) - permanency of coordinate-bench and High Court precedents - Whether receipts of the non-resident assessee for provision of well testing equipment and services for AY 2009-10 were taxable under the presumptive scheme of Section 44BB or as Fees for Technical Services under Section 9(1)(vii). - HELD THAT: - The Tribunal examined earlier decisions in the assessee's own case by a coordinate Bench of the ITAT and the judgment of the Uttarakhand High Court on identical facts, which held that receipts for work relating to drilling/exploration/well testing fall within the scope of Section 44BB. The assessee's activities - provision of rig based well testing equipment together with operating personnel - were treated as akin to work forming part of a mining/drilling project and therefore covered by the presumptive provision. Applying the ratio of the coordinate bench and the High Court decision to the facts of AY 2009 10, the Tribunal found the assessment finalized in conformity with the DRP (which had characterized the receipts as FTS) to be unsustainable. In view of the binding effect of the cited Tribunal and High Court precedents on identical facts and circumstances, the Tribunal affirmed that the income is taxable under Section 44BB and not as FTS under Section 9(1)(vii). [Paras 18, 19, 20]

The Revenue's appeal is dismissed and the cross objection is dismissed; the receipts for AY 2009 10 are held to be taxable under Section 44BB.

Final Conclusion: Applying coordinate bench ITAT and Uttarakhand High Court precedents on identical facts, the Tribunal held that the assessee's well testing receipts for AY 2009 10 fall within the presumptive scheme of Section 44BB and not under Section 9(1)(vii), and accordingly dismissed the Revenue's appeal and the assessee's cross objection.

Reassessment under section 147 - deductibility of provision for wage arrears - depreciation rate for UPS as computer asset - expenditure attributable to exempt income-section 14A and Rule 8D - book profit-applicability of section 115JB to banking companies - nature of securities-stock-in-trade versus investment (treatment of brokerage) - treatment of loss on sale of investments-HTM category versus stock-in-trade

Reassessment under section 147 - Validity of reopening assessments under section 147 for A.Y. 2005-06 and 2006-07 - HELD THAT: - The Tribunal examined the contention that the grounds on which reassessment was initiated had earlier been considered under section 263 and that proceedings were dropped. After considering the materials and the detailed reasoning of the Commissioner (Appeals), the Tribunal held that reopening was within four years and that the assessing officer had disclosed omissions and discrepancies from the original assessment order sufficient to justify reopening. The CIT(A)'s conclusion upholding the reassessments was sustained. [Paras 4]

Reopening under section 147 upheld; ground raised by the assessee dismissed.

Deductibility of provision for wage arrears - Allowability of adhoc provision for wage arrears for A.Y. 2005-06 - HELD THAT: - The assessing officer disallowed an adhoc provision debited to profit and loss account. The CIT(A) followed earlier Tribunal precedent holding that an adhoc provision for wage arrears is allowable only in the year of actual payment and not in the year of provisioning. The Tribunal found no reason to interfere with the CIT(A)'s reliance on Tribunal precedent. [Paras 5]

Disallowance sustained; deduction not allowable in year of provision.

Depreciation rate for UPS as computer asset - Appropriate depreciation rate for UPS claimed at 80% (A.Y. 2006-07) - whether 60% or 80% or lower - HELD THAT: - The assessing officer treated the UPS as electrical installation and allowed 15% depreciation. The CIT(A) followed Tribunal precedent characterising UPS connected to computers as falling within computer-related assets and allowing 60% depreciation. The Tribunal accepted the CIT(A)'s application of the earlier Tribunal decision and found no reason to interfere. [Paras 6, 11]

Depreciation at 60% allowed; excess claim denied.

Expenditure attributable to exempt income-section 14A and Rule 8D - Disallowance under section 14A for income from tax-free securities for A.Y. 2006-07 - HELD THAT: - The assessing officer invoked section 14A read with Rule 8D and made an addition. The Tribunal noted divergent authorities and that Rule 8D came into effect only from 24.03.2008 and was therefore not applicable to the relevant year. As the record did not clearly establish whether the securities were held as stock-in-trade or investments, and in view of earlier Chennai Bench practice, the Tribunal directed a standardized estimate: the AO was directed to disallow 3% of the earned exempt income for the purpose of section 14A. [Paras 7]

Section 14A disallowance upheld in quantified form by direction to disallow 3% of earned exempt income; AO to give effect.

Book profit-applicability of section 115JB to banking companies - Whether section 115JB (book profit tax) applies to the assessee bank for A.Y. 2005-06 and 2006-07 - HELD THAT: - Relying on precedents of judicial benches considering that banks prepare accounts under statutory provisions distinct from Schedule VI requirements and noting that the Finance Act 2012 amendment took effect only from A.Y. 2013-14, the Tribunal held that section 115JB was not applicable to the banking company for the years under consideration. [Paras 8]

Section 115JB held not applicable to the assessee bank for the years in issue.

Nature of securities-stock-in-trade versus investment (treatment of brokerage) - Whether brokerage on acquisition of securities is revenue expenditure or must be capitalised (A.Y. 2005-06) - remand for fresh consideration - HELD THAT: - The parties did not adequately explain or establish the nature of the investments (stock-in-trade or investment) before the Tribunal, and the assessing officer had not been apprised of the authorities relied upon. In the interest of justice the Tribunal directed remand to the assessing officer to examine afresh the nature of the investments, consider the decisions cited by the assessee and CIT(A), and pass an appropriate order. [Paras 9]

Matter remitted to the assessing officer for de novo consideration on the nature of securities and treatment of brokerage.

Treatment of loss on sale of investments-HTM category versus stock-in-trade - Whether loss on sale of investments is revenue loss or capital loss (A.Y. 2005-06) - remand for fresh consideration - HELD THAT: - For similar reasons as the brokerage issue, the Tribunal found the record inadequate on whether the investments were held as stock-in-trade or as HTM (held-to-maturity) investments. The matter was remitted to the assessing officer for fresh consideration and appropriate adjudication after examining the decisions cited. [Paras 10]

Matter remitted to the assessing officer for de novo consideration on the characterisation of investments and consequent tax treatment of loss.

Final Conclusion: The Tribunal dismissed the assessee's appeal for A.Y. 2005-06 and partly allowed the assessee's appeal for A.Y. 2006-07; it upheld reopening under section 147, sustained disallowance practice on the wage-provision issue, allowed depreciation on UPS at 60%, directed a 3% section 14A disallowance of earned exempt income for A.Y.2006-07, held section 115JB inapplicable to the bank for both years, and remitted issues concerning the nature of securities (brokerage treatment and loss on sale) to the assessing officer for fresh consideration.

Rejection of books of account - estimation of income in lieu of accepted books - evidentiary value of statements recorded during survey under section 133A - retraction of statement and its evidentiary effect - weight of investigative report vis-a -vis documentary evidence - acceptance of book results - duty to verify and summon third parties where report is adverse

Rejection of books of account - estimation of income in lieu of accepted books - evidentiary value of statements recorded during survey under section 133A - retraction of statement and its evidentiary effect - weight of investigative report vis-a -vis documentary evidence - duty to verify and summon third parties where report is adverse - acceptance of book results - Whether the assessing officer was justified in rejecting the assessee's books of account and estimating income for AYs 2007-08, 2008-09 and 2009-10 in reliance on survey/statements and an investigative report - HELD THAT: - The Tribunal found that the assessing officer's decision to reject books and estimate income rested principally on: (i) statements recorded during survey operations of third parties which were originally endorsed by the assessee's director; and (ii) a report from the DDIT(Inv.) that certain customers/suppliers were not available at given addresses. The Tribunal held that survey officials are not entitled to record statements on oath during survey under section 133A and that such statements lack independent evidentiary value for assessment purposes, particularly where the maker's statement was retracted by the assessee's director within one month by way of affidavit and the retraction was maintained in subsequent proceedings. The Tribunal noted that survey officials did not uncover incriminating material nor did the AO point to defects in the books. Further, when confronted with the DDIT report the assessee furnished ledger confirmations and copies of returns of the counterparties; instead of verifying or summoning those parties the AO ignored them and placed sole reliance on the DDIT report. The Tribunal found the CIT(A)'s conclusion that the documents were 'cooked up' to be a generalised assertion unsupported by evidence. Given the absence of independent material to displace the books, the Tribunal concluded there was no justification to reject the books or to estimate income; the book results should have been accepted. [Paras 9, 10, 11, 12, 13]

Orders rejecting books and estimating income are set aside; assessing officer directed to delete the estimated income and accept the book results for AYs 2007-08, 2008-09 and 2009-10.

Final Conclusion: All three appeals are allowed; the Tribunal set aside the CIT(A) orders, directed deletion of the income estimated by the assessing officer and directed acceptance of the assessee's book results for the years 2007-08, 2008-09 and 2009-10.

Protective addition - presumption under section 132(4A) and 292(C) - loose papers seized from third party and requirement of corroboration - additions in hands of partners based on documents not in their possession - penalty under section 271(1)(c) contingent on sustaining of substantive addition

Protective addition - Validity of protective addition of Rs.3,44,02,000 made in the hands of the partnership firm - HELD THAT: - The Assessing Officer made a protective addition in the partnership's assessment based on entries in loose papers found during search at a partner's premises. The Commissioner (Appeals) found that the unaccounted funds, according to the material, came from the partners and not from the firm and directed deletion of the protective addition. The Tribunal found no reason to interfere with the appellate authority's conclusion that the protective addition could not be sustained against the partnership firm and therefore dismissed the Revenue's appeal. [Paras 6]

Revenue appeal dismissed; protective addition in the hands of the partnership firm deleted.

Loose papers seized from third party and requirement of corroboration - presumption under section 132(4A) and 292(C) - additions in hands of partners based on documents not in their possession - Sustenance of additions made in the hands of partners (Shri Umesh I. Ishrani and Mr. Ghanshyam L. Bodani) based on loose papers recovered from a third party's premises - HELD THAT: - The additions to the partners' incomes were founded on entries in loose sheets seized from the premises of a third party (a co partner). The Tribunal examined the seized material and held that the entries did not unequivocally record payments by the partners and could equally indicate receipts; further, the Revenue had not made corroborative enquiries (notably from the alleged seller) nor produced cogent supporting evidence. Accordingly, the Tribunal held that the statutory presumptions in favour of the Revenue under the provisions applicable to materials found in the course of search could not be invoked against the partners where the material was not found in their possession and remained uncorroborated. Applying these principles and having regard to precedents on the necessity of corroboration for loose papers recovered from third parties, the Tribunal set aside the additions made in the hands of the partners. [Paras 15]

Additions in the hands of the partners deleted; appeals allowed.

Penalty under section 271(1)(c) contingent on sustaining of substantive addition - Validity of penalty imposed under section 271(1)(c) consequent to the disallowed additions - HELD THAT: - Penalty was levied in respect of the additions made in the quantum proceedings. The Tribunal, having deleted the substantive additions to income, observed that the foundation for the penalty no longer subsisted. Consequently, the Tribunal set aside the penalty confirmed by the Commissioner (Appeals) and directed the Assessing Officer to delete the penalty order. [Paras 19]

Penalty under section 271(1)(c) deleted; assessee's appeal allowed.

Final Conclusion: The appeals filed by the assessees are allowed and the Revenue's appeal is dismissed: the protective addition against the partnership was upheld as unsustainable in the firm's hands and deleted, consequential additions in the partners' hands founded on uncorroborated loose papers recovered from a third party were deleted, and the penalty linked to those additions was set aside.

Treatment of website development expenditure as revenue or capital - treatment of computer software licences as revenue or capital - enduring benefit versus accretion to fixed capital test - applicability of Rule 8D from A.Y. 2008-09 - disallowance under section 14A and apportionment on a reasonable and fair basis

Treatment of website development expenditure as revenue or capital - enduring benefit versus accretion to fixed capital test - treatment of website expenditure as akin to advertising/printing - Expenditure on website development is revenue in nature and not capital. - HELD THAT: - The Tribunal upheld the view that mere enduring benefit does not convert an expenditure into capital; the real intent and purpose and whether there is any accretion to fixed capital are determinative. Following the decision in CIT v. Indian Visit.com P. Ltd., the development of a website was treated as a means of disseminating information and akin to advertising/printing pamphlets rather than creation of a fixed capital asset. Consequently, the Commissioner (Appeals) was right in treating the website development charges as revenue expenditure and deleting the addition. [Paras 2]

Confirmed deletion of addition and held website development expenditure to be revenue expenditure.

Treatment of computer software licences as revenue or capital - enduring benefit versus accretion to fixed capital test - technological obsolescence and duration of licence as relevant - Expenditure on acquisition of software licences is revenue in nature and not capital. - HELD THAT: - Relying on Tribunal and Special Bench decisions, the Tribunal accepted that payment for application software licences that only confer a right to use and do not result in acquisition of absolute ownership or accretion to fixed capital should be treated as revenue expenditure. The short useful life due to rapid technological obsolescence and the nature of the software as enhancing operational efficiency were held to support revenue treatment; depreciation earlier allowed was to be withdrawn by the AO. [Paras 2]

Confirmed deletion of addition and held software licence expenditure to be revenue expenditure.

Disallowance under section 14A and apportionment on a reasonable and fair basis - applicability of Rule 8D from A.Y. 2008-09 - Rule 8D is not applicable to the assessment year 2007-08; the matter of disallowance under section 14A must be computed by the Assessing Officer on a reasonable and fair basis in accordance with the jurisdictional High Court decision and with opportunity to the assessee to be heard. - HELD THAT: - The Tribunal agreed with the CIT(A) that Rule 8D operates only with effect from A.Y. 2008-09 and thus could not be applied for A.Y. 2007-08. For making any disallowance under section 14A, the Tribunal directed the Assessing Officer to follow the principle of apportionment on a reasonable and fair basis as laid down by the Bombay High Court in Godrej & Boyce, noting the uncontroverted factual finding that there was no borrowing during the year. The Assessing Officer was directed to make the disallowance accordingly after affording the assessee an opportunity of being heard. [Paras 2]

Rule 8D held inapplicable for A.Y. 2007-08; matter remitted to AO to compute any section 14A disallowance on a reasonable and fair basis and after hearing the assessee.

Final Conclusion: The Revenue's appeal is dismissed insofar as additions disallowing website development and software licence expenditures are concerned; the appeal is partly allowed for statistical purposes only in relation to the section 14A disallowance - Rule 8D is inapplicable to A.Y. 2007-08 and the AO is directed to recompute any disallowance under section 14A on a reasonable basis after affording the assessee a hearing.

Admission of additional evidence under Rule 46A(c) - assessment as firm versus association of persons (AOP) - directory effect of mandatory language in tax statutes - allowability of partner remuneration and interest subject to compliance with section 40(b) - estimation of income where books are rejected and proviso to section 44AD is inapplicable - estimation under section 145(3)

Admission of additional evidence under Rule 46A(c) - Admission of the partnership deed and other additional evidence before the CIT(A). - HELD THAT: - The Tribunal found that the assessee's omission to file the partnership deed with the return fell within Rule 46A(c) as the firm was constituted for the first time in the relevant previous year and the assessee may have been unaware of the requirement. The Tribunal accepted that the assessee had filed a copy of the partnership deed before the AO and had sought admission of that document before the CIT(A) under Rule 46A, and that the failure to file earlier was attributable in part to the conduct of the advocate for whom the assessee had given a vakalatnama. Relying on the principle that there is no presumption every person knows the law, the Tribunal held it was a fit case to admit the additional evidence and set aside the CIT(A)'s rejection of the same. [Paras 4, 5, 7]

Additional evidence (partnership deed) admitted.

Assessment as firm versus association of persons (AOP) - directory effect of mandatory language in tax statutes - Whether the assessee should be assessed as a firm and not as an AOP. - HELD THAT: - Having admitted the partnership deed, the Tribunal examined section 184(2) which uses the word 'shall' to require filing of a certified copy of the partnership instrument with the return where assessment as a firm is first sought. The Tribunal compared judicial treatment of similarly worded provisions (for example under section 80IA(7)) and concluded that the requirement is directory rather than mandatory. In the circumstances the Tribunal held that absence of the deed with the return did not preclude treating the assessee as a firm once the deed was placed on record, and therefore set aside the authorities' assessment of the assessee as an AOP. [Paras 8, 11]

Assessee to be assessed in the status of a firm and not as an AOP.

Allowability of partner remuneration and interest subject to compliance with section 40(b) - Allowability of remuneration and interest claimed as payments to partners in accordance with the partnership deed. - HELD THAT: - Because the Tribunal held that the assessee is a firm, the disallowance predicated on assessment as an AOP fell away. The Tribunal directed the Assessing Officer to allow the claimed remuneration and interest paid to partners, subject to satisfaction of the statutory conditions laid down in section 40(b) of the Act. [Paras 12]

Remuneration and interest to partners directed to be allowed subject to section 40(b) compliance.

Estimation of income where books are rejected and proviso to section 44AD is inapplicable - estimation under section 145(3) - Proper rate for estimating gross profit of the assessee (sub contractor) after rejection of books and inapplicability of proviso to section 44AD. - HELD THAT: - The Tribunal noted the proviso to section 44AD did not apply as gross receipts exceeded the prescribed limit, and that the assessee failed to produce bills and vouchers to substantiate claimed expenses though books were produced. The Tribunal accepted that subcontractors ordinarily earn a lower margin and, in absence of cogent material from either side, exercised its discretion to estimate gross profit at 4% of receipts (reducing the addition accordingly). The Tribunal thus modified the estimation made by the lower authorities. [Paras 13, 14]

Gross profit of the subcontractor estimated at 4% of receipts; addition reduced accordingly.

Final Conclusion: The appeal is partly allowed: additional evidence (partnership deed) admitted; assessee to be assessed as a firm (not AOP); remuneration and interest to partners to be allowed subject to section 40(b); and profit estimated at 4% of receipts for the purpose of computing taxable income.

Penalty under section 271(1)(c) - bonafide claim - reliance on law as on date of filing return - retrospective amendment - withdrawal of claim during assessment

Penalty under section 271(1)(c) - bonafide claim - reliance on law as on date of filing return - retrospective amendment - withdrawal of claim during assessment - Whether penalty under section 271(1)(c) was leviable for claiming deduction under section 80IA(4) in the return filed for AY 2006-07 - HELD THAT: - The Tribunal upheld the deletion of penalty by the CIT(A). The assessee filed its return on 29.11.2006 claiming deduction under section 80IA(4) relying upon existing Tribunal decisions, and the challenged Finance Act, 2007 amendment (which retrospectively clarified that sub-contractors were not eligible) received Presidential assent only on 12.5.2007. The assessee revised its computation during assessment proceedings and withdrew the claim in conformity with the subsequently clarified law. Applying the principle that the law applicable is the law as it stood on the date of filing the return and having regard to bona fide reliance on judicial decisions, the Tribunal held that the claim was a bona fide view of law and not a furnishing of inaccurate particulars or concealment of income. Consequently, imposition of penalty under section 271(1)(c) was not justified.

Penalty under section 271(1)(c) deleted; Revenue's appeal dismissed.

Final Conclusion: The appeal filed by the Revenue is dismissed and the order of the CIT(A) deleting the penalty imposed under section 271(1)(c) for AY 2006-07 is upheld.

Disallowance under section 40(a)(ia) read with section 194C - purchase of materials not liable to tax deduction at source - unexplained cash credit under section 68 - proof of identity, genuineness and creditworthiness for section 68 - remand for verification of loan confirmations - business promotion expenses incurred wholly and exclusively for business - onus on revenue to verify creditworthiness once assessee discharges initial onus

Disallowance under section 40(a)(ia) read with section 194C - purchase of materials not liable to tax deduction at source - Whether a portion of payments characterized as repairs and maintenance represented purchases of materials not liable to tax deduction at source and therefore not liable to disallowance under section 40(a)(ia). - HELD THAT: - The Tribunal noted that the Commissioner (Appeals) found part of the amount claimed as repairs and maintenance actually represented purchase of electrical items and therefore did not attract TDS. The revenue did not controvert that finding before the Tribunal. In view of the unrefuted finding that the impugned portion pertains to purchase of materials for which TDS provisions are not applicable, the disallowance under section 40(a)(ia) could not be sustained. [Paras 3]

The disallowance in respect of the portion found to be purchase of materials is not sustained and the ground of revenue is dismissed.

Disallowance under section 40(a)(ia) read with section 194C - purchase of materials not liable to tax deduction at source - Whether payments characterized as printing charges included amounts for purchase of business directories/diaries not liable to TDS and therefore not liable to disallowance under section 40(a)(ia). - HELD THAT: - The Commissioner (Appeals) accepted the assessee's production of bills for purchase of Infopages/diaries and held that the specified portion did not attract TDS. The revenue did not challenge that factual finding before the Tribunal. Given the unrefuted finding that the impugned amount pertains to purchase of diaries/business directories not liable to TDS, the disallowance under section 40(a)(ia) could not be sustained. [Paras 4]

The disallowance in respect of the portion held to be purchase of materials is not sustained and the ground of revenue is dismissed.

Unexplained cash credit under section 68 - proof of identity, genuineness and creditworthiness for section 68 - remand for verification of loan confirmations - onus on revenue to verify creditworthiness once assessee discharges initial onus - Whether loans shown as credit in the assessee's books were rightly treated as unexplained cash credits under section 68, or required further verification of confirmations and creditworthiness of lenders. - HELD THAT: - The Tribunal recorded that the assessee produced names, addresses, confirmations, PAN details and showed receipt by account payee cheques. The Assessing Officer had doubts as to creditworthiness and some confirmations were filed after assessment completion, so they were not available for his verification. The Tribunal held that, having regard to these factual circumstances and the absence of verification by the AO, it was appropriate in the interests of justice to remit the matter to the AO for fresh verification of the confirmations and creditworthiness of the lenders, with an opportunity to the assessee to produce further evidence. [Paras 5]

The addition under section 68 is set aside and the issue is remanded to the Assessing Officer for fresh verification and adjudication after giving the assessee opportunity to be heard.

Business promotion expenses incurred wholly and exclusively for business - Whether the disallowance of business promotion expenses was justified where supporting bills and vouchers were produced on appeal and verified on remand. - HELD THAT: - The Commissioner (Appeals) obtained a remand report from the Assessing Officer and, finding no adverse remarks in that report and that the assessee had produced bills and vouchers, concluded the expenditures were incurred wholly and exclusively for business. The revenue did not rebut the Commissioner (Appeals)'s finding that the expenditure was genuine and business-related. In these circumstances the Tribunal found no justification to interfere. [Paras 6]

The deletion of the addition relating to business promotion expenses is sustained and the ground of revenue is dismissed.

Final Conclusion: The appeal is partly allowed: the Tribunal dismissed the revenue's challenges to the disallowances in relation to purchase of materials and business promotion expenses, and remitted the question of loans credited (section 68) to the Assessing Officer for fresh verification and decision after affording the assessee an opportunity to produce further evidence.

Right to cross-examination - principles of natural justice - reliance on statement recorded during search proceedings - remand for fresh adjudication after opportunity of hearing

Right to cross-examination - principles of natural justice - reliance on statement recorded during search proceedings - remand for fresh adjudication after opportunity of hearing - Denial of opportunity to cross-examine the witness whose statement and seized documents were relied upon by the revenue and the consequent course to be followed. - HELD THAT: - The Tribunal found that the Assessing Officer placed reliance upon a seized document and the statement of the consultant of the purchaser, and declined the assessee's specific request to cross-examine that witness. Following the decision of the jurisdictional High Court in M/s R.W. Promotions Pvt. Ltd. (as cited), the Tribunal held that where a witness's statement is relied upon by the revenue and such reliance is adverse to the assessee, the assessee is entitled to an opportunity to cross-examine the witness as part of the audi alteram partem principle. Denial of that opportunity without strong reasons recorded amounts to breach of principles of natural justice. In view of these conclusions, the Tribunal did not decide the addition on merits but directed that the issue be restored to the file of the Assessing Officer for fresh disposal after affording the assessee the opportunity to cross-examine Shri Rakesh Agarwal and after hearing the parties, so that the AO may adjudicate the question of the alleged undisclosed cash receipt in accordance with law. [Paras 11, 12]

Denial of opportunity to cross-examine was a breach of natural justice; matter remitted to the Assessing Officer to afford the assessee the opportunity to cross-examine Shri Rakesh Agarwal and to decide the issue afresh in accordance with law.

Final Conclusion: The appeal is allowed for statistical purposes by remanding the issue to the Assessing Officer with a direction to permit cross-examination of the witness and to decide the matter afresh in accordance with law.

Jurisdiction under section 263 of the Income-tax Act - Erroneous and prejudicial to the interests of the revenue - Verification of transactions and application of mind by assessing officer - Assessment cannot be reopened under section 263 on the basis of information received after completion of assessment - Allocation of sale proceeds and taxation of share in jointly held transactions

Verification of transactions and application of mind by assessing officer - Allocation of sale proceeds and taxation of share in jointly held transactions - Whether the order under section 263 was justified on the ground that the assessing officer failed to verify and should have treated the entire sale proceeds as assessable to the assessee instead of 50% share. - HELD THAT: - The Tribunal examined the agreements, deeds of conveyance and the paper book placed before the assessing officer and recorded that the assessee and Shri Sunil Tukaram Patil were parties to the transactions and their names appeared in the relevant documents. The assessing officer had test-checked the books, considered the documents showing joint participation and accepted the assessee's return that showed 50% share of the sale proceeds. In those circumstances, there was no demonstration of non-application of mind or omission on the part of the assessing officer to warrant invocation of section 263. The CIT's conclusion that the entire profit should have been assessed to the assessee was not supported by the documentary record which showed separate receipt of sale proceeds and declaration by the co-party. [Paras 12]

Section 263 could not be invoked on this ground; the assessing officer's acceptance of 50% share was not shown to be erroneous or prejudicial to the revenue.

Jurisdiction under section 263 of the Income-tax Act - Assessment cannot be reopened under section 263 on the basis of information received after completion of assessment - Whether the CIT was justified in invoking section 263 on the basis of information (letter from JCIT regarding alleged unaccounted cash receipts) that came to the assessing officer's notice only after completion of assessment. - HELD THAT: - The Tribunal noted that the assessment was completed on 18-11-2011 and the JCIT's letter intimating alleged unaccounted cash receipts was dated 02-02-2012 and was not in the possession of the assessing officer at the time of assessment. Since the assessing officer did not have that information when passing the assessment order, he could not have been faulted for failing to take action on it. The CIT cannot validly exercise jurisdiction under section 263 by relying on material that came to the departmental file only after completion of the assessment; such subsequent information would properly call for action under section 147 or other appropriate proceedings but does not render the original assessment order erroneous and prejudicial on its face. [Paras 13]

Section 263 was wrongly invoked on this ground and the order passed by the CIT on this basis was set aside.

Final Conclusion: The appeal is allowed: the Commissioner's order under section 263 is set aside because (i) the assessing officer had applied his mind to the joint land transactions and correctly accepted the assessee's 50% share, and (ii) the CIT could not invoke section 263 on the basis of information that came to the department only after completion of the assessment.

Classification of goods - Bituminous coal defined by volatile matter and gross calorific value - Statutory definition prevailing over commercial/trade nomenclature - Prima facie case and balance of convenience for grant of interim relief - Pre-deposit condition for stay of demand in appeal

Bituminous coal defined by volatile matter and gross calorific value - Statutory definition prevailing over commercial/trade nomenclature - Imported coal satisfying the specifications in Note 2 to Chapter 27 is prima facie classifiable as bituminous coal under CTH 2701 12 rather than as steam coal by commercial description. - HELD THAT: - The Tribunal applied Explanatory Note 2 to Chapter 27 which defines bituminous coal by reference to volatile matter (on a dry, mineral-matter-free basis) exceeding 14% and calorific value (on a moist, mineral-matter-free basis) equal to or greater than 5833 kcal/kg. Where the tariff itself supplies a definition by specification, that statutory definition governs classification irrespective of the commercial or trade name of the coal. The Tribunal relied on its earlier orders in Finolex Industries Ltd. and Gupta Coal India Pvt. Ltd. and the final order in Coastal Energy Pvt. Ltd. & Others to take a prima facie view that coal meeting the Note 2 specifications is correctly classifiable under 2701 12. The appellant's arguments based on trade nomenclature, alternate gradation, and technical literature were considered but did not displace the statutory specification-based classification on the prima facie record. [Paras 6]

Prima facie classification is in favour of Revenue: the imported coal falls under bituminous coal as defined in Note 2 to Chapter 27 and not as steam coal by commercial nomenclature.

Prima facie case and balance of convenience for grant of interim relief - Pre-deposit condition for stay of demand in appeal - No prima facie case or financial hardship was shown by the appellant; balance of convenience favoured Revenue and a pre-deposit of the duty demand was directed for grant of interim relief. - HELD THAT: - The Tribunal found that on the material before it the appellant had not established a prima facie case to justify waiver of the adjudged dues, nor had it pleaded or demonstrated financial hardship. Given that the entire duty demand was within the normal period, and having regard to the earlier prima facie view on classification, the balance of convenience favoured the Revenue. Consequently, the appellant was directed to make the pre-deposit to obtain stay of recovery during the pendency of the appeal, with the pre-deposit of the balance of dues adjudged being waived on compliance. [Paras 6, 7]

Appellant directed to pre-deposit the entire duty demand within eight weeks; on compliance recovery stayed and balance of dues waived for the period of the appeal.

Final Conclusion: The Tribunal took a prima facie view that the imported coal met the statutory specifications for bituminous coal and, finding no prima facie case or financial hardship for the appellant, directed pre-deposit of the adjudged duty as a condition for stay; on compliance recovery is stayed and the balance pre-deposit waived during the appeal.

Proforma invoice and part payment as concrete steps crystallising an agreement - concretised agreement precedes change in import policy - restriction on import by DGFT - confiscation under Section 111(d) of the Customs Act, 1962 - redemption fine and penalty - protection under paragraph 1.5 of the FTP 2004-09

Proforma invoice and part payment as concrete steps crystallising an agreement - concretised agreement precedes change in import policy - redemption fine and penalty - Whether part payment made against a proforma invoice prior to imposition of DGFT restriction constitutes concrete steps amounting to a crystallised agreement so as to preclude confiscation and sustain relief from redemption fine and penalty. - HELD THAT: - The Tribunal found that although the shipment occurred after the DGFT restriction dated 24.11.2008, the appellant had taken concrete steps prior to that date. A proforma invoice dated 13.10.2008 and part remittance of US$14,300 made on 18.11.2008 established that the importer had crystallised its obligation before the restriction. The Court accepted that an agreement need not be in writing and that the surrounding circumstances - notably the part payment made before the change in policy and the consequent risk of financial loss on withdrawal - permitted inference of a concluded agreement. Reliance was placed on the ratio of earlier decisions treating a proforma invoice and pre-policy remittance as evidence of a concretised agreement entitling the importer to protection when the import policy later changed. Applying that reasoning, the Tribunal concluded there was no justification for confiscation or for imposing a redemption fine and penalty where imports were undertaken in good faith and concrete steps were taken before the restriction.

Redemption fine and penalty set aside; appeal allowed.

Final Conclusion: The Tribunal allowed the appeal, holding that part payment against a proforma invoice made before the DGFT restriction crystallised the agreement and disentitled Revenue to confiscation, redemption fine or penalty; the impugned penalty and fine were set aside.

Non-retroactivity of penal provisions - prospective operation of statutory regulations - supersession of regulations - imposition of penalty under Customs Brokers Licensing Regulations, 2013

Non-retroactivity of penal provisions - supersession of regulations - imposition of penalty under Customs Brokers Licensing Regulations, 2013 - Whether a penalty under Regulation 22 of the Customs Brokers Licensing Regulations, 2013 can be imposed for an alleged irregularity that occurred on 16.11.2011 when the Custom House Agents Licensing Regulations, 2004 were in force and contained no provision for imposing penalty. - HELD THAT: - The Tribunal found that the alleged misconduct occurred on 16.11.2011 when CHALR, 2004 governed Custom House Agents and did not provide for imposition of penalty. CBLR, 2013 (which introduced Regulation 22 empowering imposition of penalty) came into effect only on 21.06.2013 and expressly superseded CHALR, 2004 "except as respects things done or omitted to be done before such supersession." Consequently, a penal power introduced by the 2013 Regulations could not be applied retrospectively to conduct occurring in 2011. The Tribunal relied on the principle that what did not exist prior to the superseding regulation cannot be brought into existence for earlier dates by the later regulation's provisions, and noted support from the Bombay High Court's reasoning in Greatship (India) Limited v. Commissioner of Service Tax regarding the saving clause on supersession. Applying these principles, the Tribunal concluded that the Commissioner could not validly impose a penalty under CBLR, 2013 for the 2011 act.

Impugned order imposing penalty under Regulation 22 of CBLR, 2013 set aside and appeal allowed.

Final Conclusion: Penalty imposed under Regulation 22 of the Customs Brokers Licensing Regulations, 2013 cannot be sustained for an irregularity that occurred on 16.11.2011 when CHALR, 2004 (which contained no penalty provision) was in force; impugned order set aside and appeal allowed.

Classification as CFL versus fluorescent tubes - Anti-dumping duty - Country of origin - Admissibility of test report evidence - Ex parte adjudication for non-appearance

Classification as CFL versus fluorescent tubes - Anti-dumping duty - Country of origin - Admissibility of test report evidence - Whether the imported goods were Compact Fluorescent Lamps (CFL), originated from China, and were liable to anti dumping duty, and whether the Commissioner (Appeals) erred in the impugned order. - HELD THAT: - The Tribunal proceeded ex parte after repeated non-appearance by the appellant. The Commissioner (Appeals) had considered whether the imports were fluorescent tubes or CFL and relied upon the Electronics Regional Test Laboratory (ERTL), Kolkata test report which confirmed that the imported goods were CFL and originated from China. On that basis the goods were held chargeable to anti dumping duty. The Commissioner (Appeals) had, however, granted relief by waiving both fine and penalty. Having perused the departmental submissions and the record, including the ERTL test report, the Tribunal found no infirmity in the factual finding on classification and origin, nor in the consequent application of anti dumping duty, and noted the appellate authority's relief on penalties.

Impugned order upheld; appeal rejected on merits.

Final Conclusion: The Tribunal, deciding ex parte for non appearance, upheld the appellate authority's finding-based on the ERTL test report-that the imported items were CFLs of Chinese origin liable to anti dumping duty, while affirming the waiver of fine and penalty; the appeal is dismissed on merits.

Exemption under Notification No. 22/99-Cus - compliance of conditions for exemption - Modvat Credit - Rule 57A of Central Excise Rules, 1944 - Rule 57G of Central Excise Rules, 1944 - trading activity

Exemption under Notification No. 22/99-Cus - Modvat Credit - Rule 57A of Central Excise Rules, 1944 - Rule 57G of Central Excise Rules, 1944 - trading activity - compliance of conditions for exemption - Denial of benefit of Notification No. 22/99-Cus on the ground that the appellant had availed or passed on Modvat credit contrary to the conditions of the Notification. - HELD THAT: - The Tribunal examined the record and found, as an established fact, that the imported goods were in fact sold under various sales invoices. A certificate dated 15.01.2002 from the Superintendent of Central Excise recorded that the appellant was engaged in trading activity and had neither availed Modvat credit under Rule 57A nor passed on any Modvat credit under Rule 57G of the Central Excise Rules, 1944. In light of the sales invoices and the official certification, the condition of Notification No. 22/99-Cus which disqualifies persons who have availed or passed on Modvat credit was not attracted. The adjudicating authority's denial of the exemption was therefore without adequate basis on the facts shown in the record. [Paras 8, 9, 10]

Impugned order denying exemption under Notification No. 22/99-Cus is set aside and the appeal is allowed on the ground that the appellant complied with the Notification's conditions.

Final Conclusion: The Tribunal allowed the appeal, holding that the appellant satisfied the conditions of Notification No. 22/99-Cus because the goods were traded and no Modvat credit was availed or passed on; the order denying the exemption was set aside.

Refund of additional duty of customs (SAD) - payment of appropriate sales tax or VAT - interpretation of notification condition for refund - CBEC Circular clarification on refund entitlement where VAT rate is lower than SAD - entitlement to full SAD refund despite nil or lower VAT rate

Refund of additional duty of customs (SAD) - payment of appropriate sales tax or VAT - CBEC Circular clarification on refund entitlement where VAT rate is lower than SAD - Whether appellants are entitled to refund of 4% SAD where the appropriate rate of sales tax/VAT on the imported goods was nil - HELD THAT: - The Tribunal examined Notification No. 102/2007 which permits refund of SAD subject to the condition that the importer shall pay appropriate sales tax or VAT. The Court applied the CBEC Circular No. 06/2008 (para 5.3) which clarifies that the notification does not condition refund on the rate of sales tax/VAT being equal to or higher than SAD, nor permit reducing refund where the VAT rate is lower than 4%. The determinative question is whether the importer paid the appropriate sales tax/VAT required by the notification. If the statutory or appropriate rate applicable to the goods is nil, the importer cannot be said to have violated the condition by not paying a non applicable tax; payment of the appropriate rate (which is nil) satisfies the notification's requirement. Consequently, where the appropriate sales tax/VAT is nil, the appellants remain eligible for the full 4% SAD refund provided other eligibility conditions are met. [Paras 4, 5]

Appellants entitled to refund of 4% SAD despite the appropriate sales tax/VAT being nil; impugned order denying refund set aside.

Final Conclusion: The appeals are allowed; the order denying refund of 4% SAD is set aside and the appellants are entitled to refund with consequential relief as may be applicable.

Possession and control - Business Transfer Agreement - job work, staff secondment and equipment lease arrangement - prima facie case - abuse of process / mala fide conduct - natural justice - jurisdiction under Section 403 of the Companies Act, 1956 - status quo

Possession and control - Business Transfer Agreement - job work, staff secondment and equipment lease arrangement - prima facie case - SPCPL's claim that, pursuant to the BTA dated 30 December 2010 and Supplemental BTA dated 18 March 2011, it has been in possession and control of VMPL's Plant No.2 since December 2010 / March 2011. - HELD THAT: - The Court examined the express terms of the BTA and the three ancillary agreements (Job Work, Secondment and Equipment Lease dated 18 March 2011) relied upon by SPCPL and concluded that the written contract does not transfer possession or control of Plant No.2 to SPCPL. Clause 1.1.4 (defining Business Assets) does not include Plant No.2, while Clause 1.1.13(d) specifically provides that VMPL shall carry out toll manufacturing (job work) at Plant No.2 and supply products to SPCPL. The Secondment Agreement expressly vests day-to-day supervision and control of deputed employees with VMPL, the Job Work Agreement contemplates job handling by VMPL at its premises (Plant No.2), and the Equipment Lease Agreement contemplates equipment being located at VMPL's premises. These clauses demonstrate that Plant No.2 remained in VMPL's possession and control and that seconded employees operated under VMPL's supervision. The Court also relied on contemporaneous affidavits and conduct (including earlier affidavits denying SPCPL's possession and statements by Rakesh in foreign proceedings) which contradicted SPCPL's present claim. On the totality of contract terms, documentary entries and prior sworn statements, SPCPL failed to make out even a prima facie case that Plant No.2 was transferred to or was in the possession/control of SPCPL under the BTA/Supplemental BTA. [Paras 11, 12, 13, 14, 20]

SPCPL has not made out a prima facie case that Plant No.2 was transferred to or is in the possession or control of SPCPL pursuant to the BTA/Supplemental BTA.

Natural justice - jurisdiction under Section 403 of the Companies Act, 1956 - status quo - Validity and scope of the Company Law Board's order dated 2 February 2015 (directions for handing over charge, restraint on interference and provision for police assistance) and whether the CLB should have joined/heard SPCPL before passing the order. - HELD THAT: - The Court held that, having found SPCPL had not established possession or control of Plant No.2, SPCPL's contention that the CLB's order violated natural justice or was beyond its jurisdiction is unfounded. The CLB's order effectively directed the removed/ex-Directors to hand over charge of VMPL's properties to the newly appointed directors and restrained interference with ingress; such relief falls within the CLB's powers under Section 403 of the Companies Act, 1956. The oral allegation of SPCPL's possession made for the first time before the CLB did not oust the CLB's jurisdiction or require joinder of SPCPL. Given the history of obstruction and non-compliance, the CLB was justified in providing for police assistance to implement its directions to maintain peace and order. Consequently, the impugned order was not vitiated for breach of natural justice or for lack of jurisdiction. [Paras 23]

The CLB's Order dated 2 February 2015 was within its jurisdiction, not in violation of natural justice as against SPCPL, and the directions (including police assistance) were justified.

Abuse of process / mala fide conduct - prima facie case - Whether the Appeal filed by SPCPL is bona fide or constitutes an abuse of process/mala fide litigation on the instance of Rakesh to retain control over VMPL's assets. - HELD THAT: - The Court found objective indicia that SPCPL's intervention was at the instance of Rakesh and was not bona fide. SPCPL repeatedly disavowed involvement in the family disputes but admitted, when queried by the Court, that it had financed litigation pursued by Rakesh since 2012 and had no board resolution authorising such financing. Prior affidavits and statements (including those by SPCPL's officers on behalf of VMPL and statements by Rakesh in foreign proceedings) contradicted SPCPL's current assertions of possession. The timing and manner of SPCPL's claims-made only when the hostile ex-directors could no longer retain assets-together with misrepresentations and contradictions on oath, led the Court to conclude the Appeal lacked bona fides and smacked of mala fides and abuse of process. [Paras 4, 22]

The Appeal was filed at the instance of Rakesh, lacks bona fides, and constitutes an abuse of the process of the Court.

Final Conclusion: The Appeal is dismissed with costs. The Court found no prima facie basis for SPCPL's claim of possession/control of Plant No.2 under the BTA/Supplemental BTA, upheld the CLB's Order dated 2 February 2015 as within jurisdiction and not violative of natural justice, and concluded the Appeal was mala fide/abusive; VMPL/RKM must, however, maintain status quo in respect of Plant No.2 for four weeks from the date of this order.

CENVAT credit on input services - nexus between input service and output service - voluntary welfare measures not eligible for input service credit - welfare measure versus statutory requirement - penalty under Rule 15(1) of the Cenvat Credit Rules, 2004

CENVAT credit on input services - nexus between input service and output service - voluntary welfare measures not eligible for input service credit - welfare measure versus statutory requirement - CENVAT credit on mediclaim/insurance premium paid for employees - HELD THAT: - The Tribunal held that mediclaim provided to employees is a voluntary welfare measure and, therefore, lacks the requisite nexus with the appellant's output service of advertising to qualify as an input service eligible for CENVAT credit. The Tribunal applied the consistent reasoning of High Courts and its own precedents: where inputs or input services are taken pursuant to statutory obligation they are duty-bound and credit may be available, but services provided voluntarily as employee welfare have no direct or indirect relation to the manufacture/provision of the final/output service and accordingly do not attract credit. The Tribunal relied upon its earlier decision in the appellant's own case and the Gujarat High Court's reasoning that services provided voluntarily for employees (such as residential security or welfare) cannot be treated as input services within the Cenvat Rules; on that basis the Commissioner (Appeals) was upheld in denying CENVAT credit on the mediclaim premium. [Paras 3, 4, 5]

CENVAT credit on mediclaim/insurance premium paid as a voluntary welfare measure is not admissible and the Commissioner (Appeals) order denying such credit is upheld.

Penalty under Rule 15(1) of the Cenvat Credit Rules, 2004 - Imposition and validity of penalty under Rule 15(1) of the Cenvat Credit Rules, 2004 - HELD THAT: - While upholding the denial of CENVAT credit, the Tribunal found the facts and circumstances did not warrant imposition of the penalty under Rule 15(1). It noted the Commissioner (Appeals) had already dropped penalties under other provisions and, considering the case, set aside the penalty imposed under Rule 15(1). The Tribunal therefore exercised discretion to rescind the penalty despite finding credit inadmissible. [Paras 6]

Penalty imposed under Rule 15(1) is set aside; no penalty to be imposed under Section 80 of the Finance Act, 1994 in the circumstances of this case.

Final Conclusion: The appeal is disposed of by upholding the denial of CENVAT credit on mediclaim as a voluntary welfare measure lacking nexus with the output service, while the penalty under Rule 15(1) is set aside and no further penalty is imposed.

Reduced penalty under the third proviso to Section 78(1) of the Finance Act, 1994 - availability of 25% penalty on payment within thirty days of communication of adjudication order - limits of appellate authority to extend statutory time for payment of reduced penalty - non-applicability of Section 11AC jurisprudence and CBEC circulars ipso facto to Section 78 by virtue of Section 83 - statutory incentive for prompt payment of service tax and interest

Reduced penalty under the third proviso to Section 78(1) of the Finance Act, 1994 - availability of 25% penalty on payment within thirty days of communication of adjudication order - limits of appellate authority to extend statutory time for payment of reduced penalty - Whether the CESTAT was justified in permitting payment of reduced penalty (25%) within thirty days from the date of the CESTAT order instead of within thirty days from communication of the adjudication order. - HELD THAT: - The Court held that the statutory scheme in the second and third provisos to Section 78(1) of the Finance Act, 1994 makes two conditions for the 25% reduced penalty clear: (i) payment of the service tax and interest must be made within thirty days from the date of communication of the adjudicating authority's order, and (ii) the reduced penalty itself must also be paid within that same thirty day period. The third proviso therefore fixes the temporal limit for availing the reduced penalty from the date of communication of the adjudication order and not from the date of any subsequent appellate order. An appellate authority cannot, by permitting payment within thirty days of its own order, extend the statutory period prescribed by the third proviso. The Court further explained that Section 11AC of the Central Excise Act and CBEC circulars relating to that provision do not ipso facto apply to Section 78 by reason of Section 83; correspondences in other statutes do not permit enlargement of the time-limit embedded in Section 78(1). The object of the provisos is to incentivise prompt payment of tax and interest; allowing an appellate extension would frustrate that legislative purpose. On these grounds the CESTAT's direction to permit payment of the reduced penalty within thirty days of the appellate order was contrary to the third proviso and legally unsustainable. [Paras 22, 23, 26, 27, 28]

The CESTAT was not justified in granting the Respondent the benefit of paying 25% reduced penalty within thirty days from the date of the CESTAT order; the time for availing the reduced penalty is limited to thirty days from communication of the adjudicating authority's order.

Final Conclusion: Appeal allowed: the CESTAT's direction permitting payment of the 25% reduced penalty within thirty days of its order is set aside as contrary to the third proviso to Section 78(1) of the Finance Act, 1994; no orders as to costs.

Transactions amounting to deemed sale not liable to service tax - Business Auxiliary Service (crate rentals) - Reverse charge mechanism for import of services - Onus of proof for taxability lies on Revenue - Requirement of personal hearing under principles of natural justice - Best judgment assessment must be supported by reasons

Transactions amounting to deemed sale not liable to service tax - Business Auxiliary Service (crate rentals) - Service tax demand on crate rentals under Business Auxiliary Service - HELD THAT: - The Tribunal held that amounts collected as crate rentals which, on the material facts, amounted to transfer of right to use with effective control and possession of the crates, fall within the character of deemed sale and are therefore not subject to service tax. The Tribunal relied on earlier decisions of fora including the Andhra Pradesh High Court holding such crate rentals liable to VAT/sales tax as deemed sale, and observed that transactions which are deemed sales cannot simultaneously be subjected to service tax. Consequently the service tax demand and related penalties confirmed on crate rentals were found unsustainable and were set aside. [Paras 7]

Demands and penalties relating to crate rentals set aside.

Reverse charge mechanism for import of services - Onus of proof for taxability lies on Revenue - Requirement of personal hearing under principles of natural justice - Best judgment assessment must be supported by reasons - Service tax demand confirmed on foreign currency expenditures and related procedure of adjudication - HELD THAT: - The Tribunal found the adjudicating authority erred in confirming demand merely by taking figures from accrual-based financial statements without establishing that specific foreign currency payments were for import of taxable services and without addressing the appellant's transaction-wise explanations and supporting certificates. The Tribunal held there is no legal principle shifting the burden to the appellant to prove non-liability; the Revenue must identify and establish, on the basis of preponderance of probability, which payments related to imported taxable services subject to reverse charge. The adjudicating authority's generalized assumptions, failure to deal with transaction-wise replies, mechanical reliance on balance-sheet entries, lack of explanation for adopting a doubled figure in best judgment assessment, and omission to grant personal hearing were held to vitiate the impugned findings. For these reasons the Tribunal set aside the impugned order on foreign currency expenditures and remanded the matter for de novo adjudication, directing opportunity of being heard and recomputation of penalties in light of the fresh adjudication. [Paras 8, 9, 10]

Impugned order in respect of foreign currency expenditures set aside and remanded for de novo adjudication with opportunity of being heard; penalties to be recomputed accordingly.

Final Conclusion: The Tribunal set aside service tax demands and penalties relating to crate rentals; it also set aside the demands relating to foreign currency expenditures and remanded those issues for fresh adjudication after affording the appellant a personal hearing, with penalties to be recomputed in accordance with the outcome of the de novo proceedings.

Business Auxiliary Service - Business Support Service - Online Information and Data Base Access or Retrieval Service - reverse charge mechanism under section 66A - Board Circular dated 19.12.11 on IPCL charges - telecommunication service supplied by Telegraph Authority - prima facie case for waiver of pre-deposit and grant of stay

Board Circular dated 19.12.11 on IPCL charges - telecommunication service supplied by Telegraph Authority - Business Support Service - Levy of service tax on IPCL charges paid to the holding company - HELD THAT: - The Tribunal observed that the Board's Circular dated 19.12.11 clarifies that private leased circuit (IPCL) charges, though falling within the broad description of telecommunication service, do not attract service tax where the service has not been provided by the Telegraph Authority under the statutory definition and further cannot be classed as Business Support Service. The correctness of the Circular was held to be open to examination at final hearing, and on prima facie consideration the appellant was found to have a strong case against the service tax demand on IPCL charges. [Paras 6]

Appellant has a strong prima facie case against service tax demand on IPCL charges; stay granted and pre-deposit waived pending disposal.

Business Support Service - Business Auxiliary Service - Chargeability of GAM (Global Account Manager) expenses to service tax - HELD THAT: - The Tribunal accepted the appellant's contention that GAM charges represent the appellant's share of operational/administrative assistance rendered by personnel of the holding company for global customers and that, insofar as such operational or administrative assistance was incorporated within the definition of Business Support Service only w.e.f. 01.05.11, prima facie the GAM activity prior to that date would not be taxable as Business Support Service. The Department's attempt to tax the charges as Business Auxiliary Service was found not to be supported by any clause of the definition in section 65(19) on a prima facie reading. [Paras 7]

Prima facie case in favour of appellant that GAM charges are not taxable for the disputed period; stay granted and pre-deposit waived pending final adjudication.

Online Information and Data Base Access or Retrieval Service - reverse charge mechanism under section 66A - Alleged receipt of online information and database access/retrieval service from overseas and corresponding service tax demand - HELD THAT: - On prima facie review the Tribunal found absence of evidence supporting the Department's allegation that the appellant received 'Online Information and Data Base Access or Retrieval Service' from the holding company. Documents on record, including the appellant's reply to the show cause notice, indicated payments in foreign exchange for software annual maintenance, hardware maintenance, internet charges, bank guarantee charges and software purchase, which prima facie do not correspond to the taxed online database service. Accordingly the appellant was held to have a strong prima facie case against the demand. [Paras 7]

Service tax demand on alleged online database/access/retrieval service lacks prima facie evidence; stay granted and pre-deposit waived pending final adjudication.

Prima facie case for waiver of pre-deposit and grant of stay - Alleged short payment for April-07 and requirement of pre-deposit, interest and penalty - HELD THAT: - With regard to the alleged short payment for April 2007, the appellant's plea that tax had been paid without awaiting receipt of consideration was prima facie accepted. Considering the cumulative prima facie findings on the main heads of demand (IPCL, GAM, alleged online services and the April-07 payment), the Tribunal concluded that the appellants had established a prima facie case warranting waiver of pre-deposit and interim stay of recovery. [Paras 8, 9]

Prima facie case established; requirement of pre-deposit of service tax, interest and penalties waived for hearing of appeals and recovery stayed until disposal.

Final Conclusion: The Tribunal found the appellants to have a strong prima facie case on major heads of demand (IPCL charges, GAM expenses, alleged online database services and the alleged short payment), accordingly waived the requirement of pre-deposit of service tax, interest and penalties and stayed recovery until final disposal of the appeals.

Export of taxable service - Courier Agency Services - deeming provision - Rule 3(2) of Export of Services Rules - requirement of receipt of payment in convertible foreign exchange - export of services exemption

Export of taxable service - Courier Agency Services - Rule 3(2) of Export of Services Rules - deeming provision - Whether the services rendered by the appellant in handling international consignments for delivery abroad during 15.03.2005 to 15.06.2005 were to be treated as export of service and hence not liable to service tax for that period. - HELD THAT: - The Tribunal applied the deeming principle in Rule 3(2) of the Export of Services Rules and held that where a taxable service specified in that sub rule is partly performed outside India it shall be considered to have been performed outside India. Courier Agency Services fall within the category covered by Rule 3(2) and, in international consignments, performance is completed when the courier is delivered outside India. Consequently the fact that the service provider and the person handing over the consignment were located in India did not alter the operation of the deeming provision. The Tribunal relied on the decision in TNT India Pvt. Limited which articulated that transportation is integral to courier services and that such services are therefore to be treated as performed outside India under Rule 3(2), entitling the service provider to export of services treatment for the relevant period. The appellant collected consignments and gross charges from customers for delivery abroad, a fact not disputed by the department, and thus fell within the exemption provided by the rule for the period in question. [Paras 3, 4, 5]

Services in respect of international consignments for the period 15.03.2005 to 15.06.2005 are to be treated as export of service under Rule 3(2) and not liable to service tax; the impugned orders are set aside and the appeal is allowed.

Requirement of receipt of payment in convertible foreign exchange - Export of taxable service - Effect of the amendment to Rule 3 inserting the proviso requiring receipt of payment in convertible foreign exchange with effect from 15.06.2005. - HELD THAT: - The Tribunal noted that with effect from 15.06.2005 a proviso was inserted in Rule 3(2) so that a taxable service would be treated as export of services only if payment for the service is received in convertible foreign exchange and the service is delivered and used outside India. The Tribunal observed that this amendment renders service tax liability applicable where these conditions are not satisfied from that date onwards. However, for the period under adjudication (15.03.2005 to 15.06.2005) the earlier deeming provision governed and entitled the appellant to export treatment. [Paras 3, 4]

The post 15.06.2005 proviso makes receipt in convertible foreign exchange a condition for export treatment prospectively; it does not affect the appellant's entitlement to export of services for the period 15.03.2005 to 15.06.2005.

Final Conclusion: The Tribunal concluded that courier agency services in relation to international consignments for the period 15.03.2005 to 15.06.2005 are deemed to have been performed outside India under Rule 3(2) and hence exempt from service tax for that period; the impugned orders were set aside and the appeal allowed, with the amended proviso requiring receipt in convertible foreign exchange noted as operative only from 15.06.2005.

Construction of complex - residential complex - abatement excluding value of free supplies - cum-tax benefit - suppression of facts and extended limitation - mandatory penalty and reduction on payment

Construction of complex - residential complex - Whether the service rendered by the appellant falls within the definition of construction of complex and is liable to service tax. - HELD THAT: - The Tribunal examined the ground plan and photographs and found the development comprised buildings having more than twelve residential units, common areas and amenities such as a community hall, parking and a park. These facts satisfy the statutory definition of "residential complex" and therefore the activity falls within the taxable category of "construction of complex". Prior authorities concerning individual residential houses (Macro Mavel Projects Ltd. and A.S. Sikarwar) were held inapplicable because those cases did not involve complexes satisfying the statutory definition. [Paras 4, 5]

The impugned service is held to be construction of complex and subject to service tax.

Abatement excluding value of free supplies - Whether abatement should be computed after including or excluding the value of free supplies. - HELD THAT: - The Revenue conceded and the Tribunal applied the ratio of Bhayana Builders to hold that the value of free supplies should not be added for computation of demand and for grant of abatement. Consequently, the taxable value for computation is the amount agreed (Rs.8,80,52,533/-) after allowing the 67% abatement without adding the value of free supplies. [Paras 3, 5]

Abatement of 67% is to be granted excluding the value of free supplies; demand to be computed accordingly.

Cum-tax benefit - Whether the appellant is entitled to cum-tax benefit under section 67(2). - HELD THAT: - The Tribunal observed that the amounts received from Haryana Housing Board did not include service tax and subsequent contracts expressly provided for separate payment of service tax, indicating the Board was not liable to pay service tax in the present case. On that basis and having regard to section 67(2), the Tribunal held that cum-tax benefit should be extended to the appellant. [Paras 5]

Cum-tax benefit is to be extended to the appellant.

Suppression of facts and extended limitation - mandatory penalty - Whether there was suppression/mis-statement attracting extended period and mandatory penalty under Section 78. - HELD THAT: - The Tribunal found that the appellant failed to obtain registration, did not pay service tax, did not file ST-3 returns, failed to furnish information despite repeated letters and summons, and particulars had to be obtained from the Haryana Housing Board. These findings established suppression of facts, justifying invocation of the extended period of limitation and attraction of the mandatory penalty under Section 78. [Paras 5]

Suppression established; extended period is invokable and mandatory penalty is attracted.

Mandatory penalty and reduction on payment - Whether benefit of reduced mandatory penalty may be granted and on what conditions. - HELD THAT: - Noting precedent that CESTAT may grant benefit of reduced mandatory penalty where lower authorities have not done so, the Tribunal modified the penalty to be equal to the computed demand but directed that if the appellant pays the entire demand along with interest within thirty days of intimation, the mandatory penalty shall be reduced to 25% of the calculated service tax provided that the reduced penalty is also paid within that period. The Tribunal directed the adjudicating authority to compute and intimate the demand and penalty within 45 days. [Paras 5, 6]

Penalty modified to equal the recalculated demand with a conditional reduction to 25% on timely payment as directed.

Final Conclusion: Appeal partly allowed in modification: service tax liability upheld as construction of complex; demand to be computed on 33% of Rs.8,80,52,533/- after 67% abatement excluding free supplies, with cum tax benefit; mandatory penalty equal to the recalculated demand subject to conditional reduction to 25% if the demand and reduced penalty are paid within the prescribed time; adjudicating authority directed to intimate recalculated demand and penalty within 45 days.

Waiver of pre-deposit - setting aside demand confirmed for Business Support Service - reliance on earlier Tribunal order deciding identical issue

Waiver of pre-deposit - setting aside demand confirmed for Business Support Service - Pre-deposit of disputed service tax, interest and penalty waived and demand set aside where demand related to provision of Business Support Service was previously set aside by the Tribunal on identical grounds. - HELD THAT: - The applicants sought waiver of pre-deposit of the contested service tax, interest and penalty. The demand against the applicants was confirmed on the ground that they had provided Business Support Service to M/s Kolhapur Sugar Mills Ltd. The Tribunal noted that earlier demands founded on the same ground for a previous period were set aside by the Tribunal by order dated 20.5.2014. Applying that precedent to the present case, and noting the identity of the ground on which the demand was confirmed, the Tribunal set aside the present demand and waived the requirement of pre-deposit of the dues. The appeal and the stay petition were therefore allowed. [Paras 4, 5]

Pre-deposit waived and demand set aside; appeal and stay petition allowed.

Final Conclusion: The Tribunal allowed the appeal and stay petition, waived the pre-deposit and set aside the service tax demand which was founded on the same ground as an earlier demand already set aside by the Tribunal.

Cenvat credit on construction/installation services - definition of input services - admissibility of credit for services availed within factory in relation to manufacture - stay of recovery of confirmed demands and penalties

Cenvat credit on construction/installation services - definition of input services - Admissibility of Cenvat credit on services for installation of 'Kaccha Sheds' used for storage of raw materials for manufacture - HELD THAT: - The Tribunal noted that, under the definition of input services in Rule 2(l) as applicable at the relevant time, all services availed within the factory or in relation to manufacture were entitled to Cenvat credit. Applying that definition to the facts, the appellant prima facie made out a case that credit of the construction/installation services for the 'Kaccha Sheds' was correctly availed. In view of the prima facie satisfaction on the admissibility issue, the Tribunal found it appropriate to grant relief from recovery pending the appeal.

Prima facie admissible; stay granted on recoveries of the confirmed demands and penalties until disposal of the appeal.

Final Conclusion: The Tribunal stayed recovery of the confirmed demands and penalties, observing that on a prima facie reading of the definition of input services the appellant has made out a case for entitlement to Cenvat credit on the installation services for the 'Kaccha Sheds'; recoveries are stayed pending disposal of the appeal.

Summary order. Appeal dismissed for non-compliance with the deposit requirement under Section 35F of the Central Excise Act as made applicable to service tax matters; dismissal ordered for failure to comply with Tribunal's deposit direction and to file compliance report.

Inclusion of reimbursable expenses in taxable value of services - service tax liability on amounts collected as reimbursement - followance of judicial precedent

Inclusion of reimbursable expenses in taxable value of services - service tax liability on amounts collected as reimbursement - Whether amounts collected by the appellant as reimbursable expenses are includible in the taxable value for service tax - HELD THAT: - The Tribunal observed that the question whether amounts collected as reimbursable expenses attract service tax has been decided by higher judiciary in favour of the assessee. Both parties accepted that the issue is covered by the decisions of the High Court of Delhi in Intercontinental Consultants & Technocrats Pvt. Ltd. and the High Court of Madras in Sangamitra Services Agency. Applying those precedents, the Tribunal found that reimbursable expenses collected by the appellant are not to be included in the taxable value of services and do not give rise to service tax liability. The impugned order taxing such amounts was therefore set aside and the appeal allowed.

Impugned order set aside; appeal allowed and amounts collected as reimbursable expenses held not includible in taxable value for service tax following the cited precedents.

Final Conclusion: The appeal is allowed: amounts collected by the assessee as reimbursable expenses are not includible in the taxable value for service tax, and the impugned order is set aside, the Tribunal respectfully following the cited High Court precedents.

Confirmation of service tax demand - site formation and clearance services - disputed nature of services - interpretation of scope of services - waiver of penalty under Section 80 of the Finance Act, 1994

Confirmation of service tax demand - site formation and clearance services - Confirmation of service tax demand for provision of site formation and clearance services to South Eastern Coalfields Limited - HELD THAT: - The Tribunal confirmed the demand of service tax against the appellants for having provided site formation and clearance services to South Eastern Coalfields Limited. The learned advocate for the appellants conceded that the issue had been decided against them by the Tribunal in National Mining Co. Ltd. vs. CCE, Dibrugarh (2008 (10) S.T.R. 136 (Tri. Kolkata)), and accordingly did not contest the confirmation of the demands. On consideration, the Tribunal upheld the confirmation of the demands as recorded in the order. [Paras 1, 3]

Demands of service tax confirmed

Waiver of penalty under Section 80 of the Finance Act, 1994 - disputed nature of services - interpretation of scope of services - Whether penalties should be imposed or waived given the disputed nature and interpretation of the services - HELD THAT: - Although the substantive demand was upheld, the appellants sought waiver of penalties relying on the Tribunal's reasoning in National Mining Co. Ltd. vs. CCE, Dibrugarh, which noted the disputed nature of the services and the interpretative issues concerning their scope. The Tribunal accepted that position and, in exercise of its discretion and by reference to the declaration of law in the cited decision, set aside the penalties imposed on both appellants. [Paras 2, 3]

Penalties set aside under Section 80 of the Finance Act, 1994

Final Conclusion: The appeals result in confirmation of the service tax demands for site formation and clearance services, while the penalties imposed on the appellants are set aside in accordance with the Tribunal's earlier declaration of law in National Mining Co. Ltd. vs. CCE, Dibrugarh.

Cenvat credit - input service - Cenvat Credit Rules, 2004 - construction contractor services - insurance premium for factory building

Cenvat credit - input service - construction contractor services - Cenvat credit of Service Tax paid on construction services availed for expansion of the factory building is admissible. - HELD THAT: - The Tribunal accepted the appellant's submission that the building was constructed for use as a factory and that Service Tax was paid on services rendered by the construction contractor. In the absence of any factual dispute raised by revenue, such services fall within the ambit of the definition of "input service" under Rule 2(l) of the Cenvat Credit Rules, 2004. The Tribunal held that this ground alone sufficed to allow the appeal and to grant interim relief.

Appeal allowed insofar as Cenvat credit on construction contractor services is admitted.

Cenvat credit - input service - insurance premium for factory building - Cenvat credit of Service Tax paid on insurance premium for the factory building is admissible. - HELD THAT: - The Tribunal accepted the contention that the building is used in manufacture and that insurance of the building is an essential necessity. Given the lack of factual dispute from revenue and having regard to the definition of "input service" under the Cenvat Credit Rules, 2004, Service Tax paid on the insurance premium of the building was held admissible as Cenvat credit.

Appeal allowed insofar as Cenvat credit on insurance premium for the building is admitted.

Final Conclusion: The Tribunal allowed the appeal and disposed the stay application, holding that Service Tax paid on construction contractor services for factory expansion and on insurance premium for the factory building are admissible as Cenvat credit under the definition of input service in the Cenvat Credit Rules, 2004, in the absence of any factual dispute from the revenue.

Seizure and detention of goods and vehicle under value added tax enforcement - verification of tax liability as ground for retention of goods - detention unnecessary where verification can be carried out without retaining vehicle - discrepancy in vehicle particulars and documentary evidence - inter state sale accompanied by prescribed movement document

Seizure and detention of goods and vehicle under value added tax enforcement - verification of tax liability as ground for retention of goods - detention unnecessary where verification can be carried out without retaining vehicle - discrepancy in vehicle particulars and documentary evidence - Lawfulness of detaining the truck together with the goods for verification of the petitioner's tax liability and whether the goods must be released forthwith. - HELD THAT: - The Court examined the seizure memo issued under the VAT provisions and the factual position that the driver carried Form No.403 and that the respondents relied on an alleged lack of trip sheet/log book and a discrepancy between the vehicle number recorded in transport documents and the detained truck. The Court noted that respondents may lawfully verify the petitioner's tax liability, including inquiries arising from any discrepancy in vehicle particulars, but such verification does not legally require continued detention of the truck and goods. As no condition of penalty for release had been imposed and the respondents merely sought to verify facts and tax liability, the Court ruled that detention was excessive; the appropriate course is to permit verification in accordance with law while releasing the vehicle and goods forthwith. [Paras 7, 8]

Detention of the truck with goods was not necessary for verification; respondents may verify tax liability but must immediately release the truck and goods.

Final Conclusion: Writ petition allowed; respondents directed to forthwith release the truck and goods while retaining liberty to verify the petitioner's tax liability in accordance with law.

Best judgment assessment - opportunity to produce records / right to be heard - procedure for issuance of notice under the KVAT Act - composite notice calling for documents and show-cause - remand for fresh assessment after affording hearing

Best judgment assessment - procedure for issuance of notice under the KVAT Act - opportunity to produce records / right to be heard - composite notice calling for documents and show-cause - Compliance with Sections 22 to 25 of the KVAT Act and the requirement of issuing separate, adequate notices and affording a meaningful opportunity of being heard before completing an assessment on best judgment basis. - HELD THAT: - The Court found that the Assessing Officer did not comply with the procedure mandated by Sections 22 to 25 of the KVAT Act before resorting to a best judgment assessment. Following this Court's guidance in Shamon K.S., where defective or incorrect returns require an initial notice to produce documents or file a fresh return (with a reasonable period) and, only thereafter, a distinct show-cause notice proposing best judgment assessment, the composite practice of issuing a single notice calling both for documents and for show-cause is impermissible. The composite seven-day notice in this case was held to be contrary to the statutory scheme and the settled judicial procedure; the Assessing Officer's failure to give the petitioner the statutorily and judicially mandated opportunity to produce records and be heard rendered Exts.P7 to P12 vitiated. [Paras 3]

Exts.P7 to P12 assessment orders quashed for non-compliance with the notice and hearing procedure required before making a best judgment assessment.

Remand for fresh assessment after affording hearing - opportunity to produce records / right to be heard - Direction for fresh assessment and the procedural steps to be followed on remand. - HELD THAT: - The Court directed that the matter be remitted to the Assessing Officer to complete the assessment afresh after affording the petitioner an opportunity of being heard. The Court specified that the petitioner shall appear before the Assessing Officer on the date fixed and that the Assessing Officer shall pass fresh orders within a time-bound period thereafter, thereby limiting the remand to re-administration of the assessment process in accordance with statutory procedure and judicial directions. [Paras 4]

Assessment remanded for fresh adjudication after hearing; petitioner directed to appear on the specified date and Assessing Officer directed to pass orders within one month.

Final Conclusion: Assessment orders for the months September-December 2014 and January-February 2015 (assessment year 2014-15) quashed for failure to follow statutory notice and hearing procedure; matter remitted to the Assessing Officer to complete assessment afresh after affording the petitioner a hearing, within the time directed by the Court.

Detention of vehicle and goods - interim release subject to deposit - verification at border checkpost - deposit subject to ultimate outcome and refund claim - petition rendered infructuous

Detention of vehicle and goods - interim release subject to deposit - deposit subject to ultimate outcome and refund claim - verification at border checkpost - Whether any relief remains to be granted in the petition challenging the notice ordering detention of the truck along with goods, in view of compliance with the court's earlier directions and the subsequent movement of the vehicle out of Gujarat. - HELD THAT: - The court recorded that the petitioner deposited the amount directed by the earlier order and has produced documents showing the truck had crossed the Gujarat border into Maharashtra, a position not disputed by the respondents. The parties agreed that, given the deposit and the vehicle having left the State, the challenge to the detention no longer survives. The earlier interim direction envisaged release of the vehicle upon deposit of the specified amount and permitted verification with the Bhilad checkpost to confirm exit from Gujarat; those contingencies have been satisfied. The deposit was made subject to the ultimate outcome of any proceedings that the respondents may initiate, and the petitioner retains the right to seek refund if no proceedings are taken. [Paras 3, 5, 6]

The petition is disposed of as having become infructuous; rule discharged with no order as to costs.

Final Conclusion: Petition dismissed as infructuous since the petitioner complied with the court's interim directions by depositing the required amount and the vehicle with goods has left Gujarat; matter therefore stands disposed without costs, subject to the petitioner's existing right to seek refund in accordance with the outcome of any proceedings initiated by the respondents.

Stay of assessment orders - forbearance of recovery proceedings pending disposal of appeals - condition of deposit and bank guarantee as security for stay - extension of stay

Forbearance of recovery proceedings pending disposal of appeals - stay of assessment orders - condition of deposit and bank guarantee as security for stay - Whether the revenue should be restrained from initiating recovery proceedings until the appellate authority disposes the pending appeals, where the assessee has complied with the deposit and bank guarantee conditions imposed for grant/extension of stay. - HELD THAT: - The petitioner had paid the prescribed deposits (25% at filing and a further 25% as directed) and furnished bank guarantees for the balance tax and penalty, which guarantees remain in force until March 2016. Although the appellate authority had reserved orders and the petitioner had applied for extension of stay, the assessing authority threatened recovery absent production of stay or extension orders. Having regard to the fact that revenue security is preserved by the deposits and the bank guarantees, and that the appeals remain pending before the appellate authority, the High Court exercised its discretion to keep recovery proceedings in abeyance until final orders are passed in the specified appeals. The court thus protected the assessee from coercive action while leaving determination of the appeals to the appellate forum.

Recovery proceedings by the assessing authority shall be kept in abeyance and the stay of the assessment orders shall remain in force until the appellate authority disposes of the listed appeals.

Final Conclusion: Writ petitions disposed by directing the assessing authority not to proceed with recovery till the appellate authority disposes A.P. No.156 of 2014 (TNGST 2003-04), A.P. No.155 of 2014 (TNGST 2004-05), A.P. No.83 of 2014 (TNVAT/2006-07) and A.P. No.12 of 2015 (TNVAT/2011-12); stay to operate until disposal; no costs.

Exemption from payment of advance tax - requirement of speaking and reasoned order - opportunity of hearing / audi alteram partem - proof of TDS by certificate in Form VAT-27

Requirement of speaking and reasoned order - opportunity of hearing / audi alteram partem - Annexure P-8 is liable to be quashed for not being a speaking order and for denial of opportunity of hearing. - HELD THAT: - The order dated 30.7.2015 (Annexure P-8) merely states that the petitioner is not eligible for exemption as per notification dated 15.11.2013 and records that 'after verifying all aspects of the case' the petitioner is not eligible. The Court found that the order is neither speaking nor was made after affording the petitioner an opportunity of hearing. Where an authority reaches a conclusion of ineligibility it must deal specifically with the contentions and evidence and record reasons; failure to do so renders the order non-speaking and unlawful. The impugned order therefore did not meet the requisite standards of reasoning and fair procedure. [Paras 7, 8, 9]

Impugned order (Annexure P-8) quashed for lack of reasons and for being passed without affording an opportunity of hearing.

Exemption from payment of advance tax - proof of TDS by certificate in Form VAT-27 - Claim for exemption from payment of advance tax not decided on merits and remanded for fresh consideration. - HELD THAT: - The Court did not express any opinion on the substantive merits of the petitioner's entitlement to exemption. The petitioner is granted liberty to file a detailed representation within 15 days and the concerned authority (respondent No.4) is directed to decide the same in accordance with law by passing a speaking order after affording an opportunity of hearing within 15 days of receipt of the representation. The petitioner is permitted to produce evidence to substantiate his claim, including materials relevant to deduction of TDS and any certificates such as Form VAT-27, which the department had noted as lacking in the returns. [Paras 9]

Merits of the exemption claim remanded for fresh adjudication by respondent No.4 in accordance with law, on receipt of a representation, with opportunity to lead evidence.

Final Conclusion: Annexure P-8 is quashed for being non-speaking and passed without hearing; petitioner granted liberty to file a representation within 15 days and respondent No.4 directed to decide it by a reasoned speaking order after affording hearing within 15 days, without expressing any view on the merits.